Preserving Access to Manufactured Housing Act - H.R.1699
Summary
H.R. 1699 amends the Truth in Lending Act (15 U.S.C. 1601) to allow for the first mortgage on a homeowner’s principal home to not be considered “high cost” if (1) the mortgage annual percentage rate (APR), at the time of consummation of the loan, does not exceed 10 percent of the average prime offer rate (APOR) (2) the transaction does not exceed $75,000 and, (3) the mortgage points and fees paid to the mortgage originator do not exceed 5 percent of the transaction or $3,000. The Consumer Financial Protection Bureau (CFPB) will have the ability to adjust designated amounts to reflect changes in the Consumer Price Index (CPI). This will allow consumers of small-balance residential loans to have increased access to mortgage credit.
This legislation also clarifies that the definitions of “mortgage originator” and “loan originator” do not include retailers of manufactured or modular homes, unless a retailer receives compensation from the sale of the loan or assists the consumer during the loan application process.
Background
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act to address abusive practices in refinancings and closed-end home equity loans with high interest rates or high fees.Since HOEPA’s enactment, refinances or home equity mortgage loans meeting any of HOEPA’s high-cost coverage tests have been subject to special disclosure requirements and restrictions on loan terms, and consumers with high-cost mortgages have had enhanced remedies for violations of the law.
The Dodd Frank Act, and the implementing rule, changed certain tests for determining if a loan is considered “high cost” under HOEPA. Previously, a loan was covered by HOEPA if the APR exceeded the average prime offer rate by more than 10 percentage points, or if the points and fees paid by the consumer exceeded the greater of 8 percent of the loan amount or $400, which was set in 1994 and has been adjusted for inflation. The Dodd-Frank Act lowered the rate threshold for HOEPA coverage. Since the law has been implemented, a loan will now be covered by HOEPA if the applicable APR exceeds the APOR by more than 6.5 percent for a first-lien mortgage; or by more than 8.5 percent for a first-lien mortgage if the transaction is for less than $50,000.
The Committee on Financial Services found that the new tests in determining if a loan is “high cost” have resulted in reduced access to credit for consumers of affordable manufactured and modular housing. Due to increased lender liability associated with making small-balance loans applicable to HOEPA standards, some lenders reduced or stopped providing such loans to some consumers.
Lenders have argued that they frequently need to charge higher interest rates to consumers of manufactured homes because those consumers oftentimes carry a higher risk of default. Lenders have also argued that cost discrepancies occur because the cost of servicing a larger-balance loan is very similar in real dollars to that of servicing a small-balance loan, while the service cost as a percentage of a loan is much higher for small-balance loans.
H.R. 1699 is similar to H.R. 650, the Preserving Access to Manufactured Housing Act of 2015, which passed the House in the 114th Congress by a vote of 263-162.
Cost
The Congressional Budget Office (CBO) estimates that enacting H.R. 1699 would increase direct spending by less than $500,000 for the Consumer Financial Protection Bureau (CFPB). Because H.R. 1699 would affect direct spending, pay-as-you-go procedures apply. CBO estimates that the bill would not affect revenues. Implementing H.R. 169 will not affect spending subject to appropriation because the CFPB is permanently authorized to spend amounts transferred from the Federal Reserve System.
Democratic Whip Steny Hoyer:
The Dodd-Frank Act modified the Home Ownership and Equity Protection Act (HOEPA), classifying more loans related to manufactured housing as “high-cost mortgages” in an effort to strengthen the consumer protections available to borrowers – as many borrowers purchasing manufactured homes are among the lowest income and economically vulnerable consumers.
This bill would modify the definition of “high-cost mortgage”, raising the Average Prime Offer Rate (APOR) interest rates prescribed by HOEPA, from 6.5% to 10% for loans between $50,000 and $75,000 and from 8.5% to 10% for loans under $50,000. Further, it would amend the Truth in Lending Act, changing the definition of “loan originator” such that rules established by the Consumer Financial Protection Bureau for marketing and documenting consumer financial transactions do not apply to manufactured housing salespeople who offer credit to borrowers. Both of these changes would make borrowers more susceptible to predatory lending and with higher costs.
In April of 2015 the House passed identical legislation despite a SAP by President Obama stating that his senior advisors would recommend he veto the bill.
